trend following strategies

Z

z106

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Does anybody here use any trend following strategies that have worked / failed when investing in equities ?

In fact - what do people feel generally about trend following straegies?
DO they think there is some substance to the theory or do they think it is a load of rubbish?
 
This has been tested extensively and security prices do trend, whether it's exploitable after costs is arguable.
 
Hi,

Currently working on this at the moment. Have been for 4 months now and beginning to make some progress, though I have been stung a number of times after making some stupid errors. But have learned an awful lot from the experience and still determined to hang in.

I have based the foundations of my strategy on a great book I came across when reasearching Spread Betting:

http://www.amazon.com/Financial-Spread-Betting-Handbook-Trading/dp/1897597932/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1196792617&sr=8-1

Absolutely invaluable as the biggest problem with Trend following is managing the leverage aspect. If your triggers are too far away then you never get in while if they are too tight you lose your bet before you can blink...... It is a real balancing act. To me it is far more important than the strategy (risk management).

Basically the strategy is just an indicator of potential .....the hard part of jumping on the trend with a minimum of capital exposed and then pulling up your stop loss as you start to make profit. That is why the book is important.

Problem at the moment is that the markets are neither trending up or down so opportunities are very limited (supported by Market Monkey in the Tribune).

I use equis to run explorations against the market and then identify potential opportunity.

I spotted "Charter" in the UK as an opportunity last week. The stock was at 910. I put in an order to Sell at 894 with a stop loss at 916. The order was actioned and then closed out in a few hours so despite the signs decided not to go back in. Since then the stock has dropped an impressive 139 points !!! Lesson here was my spread range is too tight in a volatile market but if I kept my discipline then I would have been okay. This has happened a few times.

My advice .... read, read, read and then use the Simulators (Paddy Power is best as Delta does not allow access to charts (which incidentially are not right anyway)). Ultimately though you have to learn on the job, when to get out and when to stay in....

EddieT
 
EddieT said:
Hi,

Currently working on this at the moment. Have been for 4 months now and beginning to make some progress, though I have been stung a number of times after making some stupid errors. But have learned an awful lot from the experience and still determined to hang in.

I have based the foundations of my strategy on a great book I came across when reasearching Spread Betting:

http://www.amazon.com/Financial-Spread-Betting-Handbook-Trading/dp/1897597932/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1196792617&sr=8-1

Absolutely invaluable as the biggest problem with Trend following is managing the leverage aspect. If your triggers are too far away then you never get in while if they are too tight you lose your bet before you can blink...... It is a real balancing act. To me it is far more important than the strategy (risk management).

Basically the strategy is just an indicator of potential .....the hard part of jumping on the trend with a minimum of capital exposed and then pulling up your stop loss as you start to make profit. That is why the book is important.

Problem at the moment is that the markets are neither trending up or down so opportunities are very limited (supported by Market Monkey in the Tribune).

I use equis to run explorations against the market and then identify potential opportunity.

I spotted "Charter" in the UK as an opportunity last week. The stock was at 910. I put in an order to Sell at 894 with a stop loss at 916. The order was actioned and then closed out in a few hours so despite the signs decided not to go back in. Since then the stock has dropped an impressive 139 points !!! Lesson here was my spread range is too tight in a volatile market but if I kept my discipline then I would have been okay. This has happened a few times.

My advice .... read, read, read and then use the Simulators (Paddy Power is best as Delta does not allow access to charts (which incidentially are not right anyway)). Ultimately though you have to learn on the job, when to get out and when to stay in....

EddieT
Click to expand...

Interesting stuff Eddie T.

SO - in summary,what is teh trading strategy in that book you mentioned?

E.g. I have come accross one trading strategy which says buy long when the price is above both the 40 day and 20 day simple moving average.
And exit the long position when the price dips below the 20 day S.M.A.

For going short it recommends doing teh opposite.
THis theory however was put forward by a guy called vince stanzione who seems to generally have a dodgy rep o just running realy expensive workshops of no real substance. Maybe that's just the cynics speaking !!

ANother strategy by a different guy called mark shipman also seems interesting.
He looks at far more long term and invests only after 12 week higher-highs.Normally he could hold a position for many many months.
By the way - mark shipman comes accross as a fairly reliable character to me.
There is a link below to an interview of his on the late late show.
I got his book - it's very very good.

[broken link removed]

His interview is half way down the page.

He also has a free webiste where he updates his positions every week.
www.trend-follower.com
 
I think it definitely 'works' as a strategy, to a point. But only in so much as value, growth, O'Higgins and everything else 'works'. It must be very difficult to do as a DIY private investor I think although I do know of listed funds which operate trend-following strategies so a small investor can get access through there but the most successful funds in this space are effectively scientific R&D establishments with rafts of PhDs on the payroll. They often do provide diversification as they tend to be positively correlated to volatility.
 
I read Shipmans book too after seeing him on the Late Late ... the book was very commodities focused but still good and worth reading.

I read Richard Farleighs 'Taming the Lion' just before that it really enjoyed reading that alot more. There is a chapter in it on Trends in Prices. He discusses the pyshology of investing alot. Alot of very interesting stuff in it for the likes of me who is a bit of a novice. Highly recomended!

DDG
 
disbanddegaa said:
I read Shipmans book too after seeing him on the Late Late ... the book was very commodities focused but still good and worth reading.

I read Richard Farleighs 'Taming the Lion' just before that it really enjoyed reading that alot more. There is a chapter in it on Trends in Prices. He discusses the pyshology of investing alot. Alot of very interesting stuff in it for the likes of me who is a bit of a novice. Highly recomended!

DDG
Click to expand...

That's the guy from dragons den ya ? I might buy that today.

You are right in saying that his book was very commodities based.
However - his technical strategy currently sees him with only one position open on commodoties (Gold).

One thing about technical analysis though.
On any site - including shipmans - it says psst performance is no indicator of future performance.
HOwever - surely this contradicts the very basis of technical analysis no?
 
fair point but I think there's a regulatory need to do this as well. What I think is more feasible that past performance might help you to predict how other market participants are likely to react to similar events in the future which is along the lines of the Farleigh book which btw, I thought was really good too.
 
>That's the guy from dragons den ya ? I might buy that today.

Yep, thats him, trained economist, then worked for Aussie Central bank, then on trading desks, then hedge fund manager in Bermuda, then was able to "retire" to Monaco in his 30s. Excellent book!

>On any site - including shipmans - it says psst performance is no indicator of future performance. HOwever - surely this contradicts the very basis of technical analysis no?

Thats obviously just a standard legal disclaimer to cover themselves from being sued. Wouldnt take much notice of it.

DDG
 
qwertyuiop said:
Interesting stuff Eddie T.

SO - in summary,what is teh trading strategy in that book you mentioned?

E.g. I have come accross one trading strategy which says buy long when the price is above both the 40 day and 20 day simple moving average.
And exit the long position when the price dips below the 20 day S.M.A.

For going short it recommends doing teh opposite.
THis theory however was put forward by a guy called vince stanzione who seems to generally have a dodgy rep o just running realy expensive workshops of no real substance. Maybe that's just the cynics speaking !!

ANother strategy by a different guy called mark shipman also seems interesting.
He looks at far more long term and invests only after 12 week higher-highs.Normally he could hold a position for many many months.
By the way - mark shipman comes accross as a fairly reliable character to me.
There is a link below to an interview of his on the late late show.
I got his book - it's very very good.

[broken link removed]

His interview is half way down the page.

He also has a free webiste where he updates his positions every week.
www.trend-follower.com
Click to expand...



qwertyuiop,

My strategy is to trawl the market looking for Securities / Indices that match a particular criteria. The Criteria is made up of a combindation of indicators (ADX > 30 and rising, MDI, PDI, stock in pullback from 60 day high, Risk Ratio over 2, etc.etc..) I have researched each indicator and then I have created a formula. When I run the formula against the list of market (filtered - because the Spread Betting company have to list the stock before they will take the bet) stock I get a handful of potential candidates back.

These are the watches. I review the charts and then decide on the Buy/Sell levels, stop loss etc and place an order. This is called the setup. If the stock triggers I end up with an open position, if not then after a number of days it gets discarded.

I never risk more than 1% of my capital. I never move a stop loss back after it is setup. I do no background checks on the companies as I am not betting on their latest products or End-Of-Year results, I am betting on what the market decides is likely outcome is for this stock. Just following the gang - jumping on when a trend has started and jumping off after it has ended.

If profit is made I use a trailing stop loss to lock in some of the gains before the market turns again.

Stock markets moving side ways kill me. They need to be clear Bull or Bear, then you are just jumping onto market sentiment.

Keep the losses to a strict limit but let the winners run. In a good trending market the few winners should easily cover all the small losses.

In other words I am sampling stocks that have good potential for price movement.

As I said before the strategy is not the most important thing, the Risk Management is. It is a serious learning curve that I have no doubt will take years to master but I have the interest so.....

I like Shipman ..... I think he has a very valid point about the commodity market. If you apply his 'different phases of a bubble' to the Irish housing market then it makes perfect sense. With regard to his, only talking about commodities I think the point is irrelevant. If you feel the same then you have missed the point of how Trend Following works. It is called "Trend following" and not "Trend following for Equities only". the same basic principles of Trend Following apply with equities as they do with commodities or indeed buying houses. For example, when Mark Shipman was on the Late Late Brend Crude oil was about $65 a barrel (or 6500 on the indices) it rose to (9725) last week. Yet we all knew it was going to rise. The papers had been telling us for months ...... 3225 points
Think about it the context of the Irish housing market.... the market starts to go up so you buy based on some fundamental indicators etc GDP, CSO statistics and you hold on until the market starts to turn then you sell..... what could be closer to Trend Following than this...

My indicators for identifying trends are the charts and my formula....

simple.

EddieT
 
Interesting stuff folks.

I think Shipmans tactics are sound but would appear to be more long term and larger accounts are needed I feel.

I recommended a book on a different post today and will do so here again - its called 'The Financial Spread Betting handbook' By Malcolm Pryor, excellent book and I am now just starting to put his theories to the test.

One of his simple theories is based on ADX.
A - Go long when ADX is 30 and above and D1+ is greater than D1- and go short when ADX above 30 and D1- is greater than D+.
Should state however that additional set up criteria has to be satisfied before an actual bet is placed - too detailed for here, all in the book however.

I raised the idea previously on this site of setting up a small group of spread bettors, say 5 or 6 of us could, as a group, keep in touch and share ideas/results/sucess rates with different stratagies etc - a mastermind group if you like - does anyone think this might be worthwile?
 
You may (or may not be!) interested in TICN.

They are an Irish based investment club, they do take a fee however, it was minimal..not for me but just another option.

Not sure if they touch on spread betting all the same!
 
chicote said:
Interesting stuff folks.

I think Shipmans tactics are sound but would appear to be more long term and larger accounts are needed I feel.

I recommended a book on a different post today and will do so here again - its called 'The Financial Spread Betting handbook' By Malcolm Pryor, excellent book and I am now just starting to put his theories to the test.

One of his simple theories is based on ADX.
A - Go long when ADX is 30 and above and D1+ is greater than D1- and go short when ADX above 30 and D1- is greater than D+.
Should state however that additional set up criteria has to be satisfied before an actual bet is placed - too detailed for here, all in the book however.

I raised the idea previously on this site of setting up a small group of spread bettors, say 5 or 6 of us could, as a group, keep in touch and share ideas/results/sucess rates with different stratagies etc - a mastermind group if you like - does anyone think this might be worthwile?
Click to expand...

I must get that book.

The one thing I liked abput mark shipman was actuall seeing him on the late late show and being able to judge him as much as how he expressed himself as to what he said.

He came accross really well and not some hair-brained 2nd hand car salesman.

FOr that reason I think I may stick to shipman.

I've just started copying what he does.

FOr anyone who wants to see his current open positions goto www.trend-follower.com. It's free !
He updates it every monday afternoon with his new positions for the week.
His positions don't change all that frequently as you'll see.
 
EddieT/qwertyuiop,

If its all the same I am gonna add you folks to my contacts list, I will let you know what works for me and what doesnt.

I think it is important to be around like minded individuals.

The goal has to be to make a good living from this, other people do, so no reason why we cant.
 
Has anyone here tried trading the fx market.
Its the most liquid trending market in the world with around three trillion turnover every day.

Added to this there are only a handful of forex pairs to trade and analyze, unlike stocks and commodities which are in the thousands.
 
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EddieT, I would be interested in getting the details of your strategy. Can you post or PM me please?
Chicote as well, if you have any interesting strategies please let me know.
The reason is i usually ignore ADX, RSI and other indicators , just focus on support/resistance lines and volume. I would like to check out any methods using ADX etc. to see how they perform.
 
Mark shipmans is very simple.

He uses a 40 week moving average.

HE goes long if the closing prie at the end of a week is highere than all the previous 12 weeks closing prices and if teh price is above the 40 week moving average and if teh 40 week moving average is rising.

HE then sells that long trade if the price dips below the 40 week moving average.

It seems he doesn't go short on trades.
 
BTW there is a Spreadbetting supplement in todays Financial Times newspaper, some people might be interested.
 
EddieT said:
As I said before the strategy is not the most important thing, the Risk Management is.
Click to expand...

To any aspiring trader this is the most crucial point to bear in mind. I have said it before myself in other threads - money management and perseverance will determine your level of success more than any fundamental or technical approach that you apply to trading financial markets.
 
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